Why has Ford stock plunged this year?
— -- 1Q: Why has Ford stock fallen so badly this year? The company appeared to be doing well coming into 2011.
The stock had soared 68% during 2010 and CEO Alan Mulally was named Morningstar CEO of the year.
But despite all the hoopla and TV appearances, investors who piled into Ford in 2011 have been left choking on exhaust. Shares of Ford are down almost 40% this year, a disappointing run given that the Standard & Poor's 500 is down only 3%. Investors would have done better just investing in a passively managed index fund than buying into shares of what looked to be one of the most promising stocks around.
What has happened to Ford's stock? Investors have punished Ford shares, in part, because of the lingering fear the U.S. is teetering on the precipice of another recession, says William Selesky of Argus Research. When investors fear an economic slowdown, they tend to punish automakers' shares, he says.
Ford itself has been scaling back its internal forecasts for vehicle sales for 2011, Selesky says. The industry is now expected to sell 13.0 million vehicles in total in the U.S., Selesky says, down from the 13.4 million many expected at the beginning of 2011. "People are worried about that," he says.
Ford also continues to get hit by rising costs. The company has warned analysts rising steel and rubber costs could be an "expense drag" on the company. "That has also knocked down the shares," he says.
With all that said, Ford investors have better things to look forward to in the future. Ford reinstated its quarterly dividend.
And after the beating Ford's stock has taken this year, it is a much more compelling value for investors, says S&P stock analyst Efraim Levy. "The auto industry is generally undervalued," he says. "People are just worried and being extra cautious."
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz
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